“Truth,” it has been said, “is the first casualty of war.” – Philip Snowden[i]
A theme, long sustained within conservative economic circles, is that FDR’s New Deal crippled the recovery and prolonged the Great Depression. Screeds, like the following by Phil Gramm, a not insignificant player in legislative assemblies past, is stereotypical of this meme.
In all recoveries following all 30 economic contractions since 1870, only two have failed to have strong rebounds after deep recessions. Only two are now labeled “Great” because of the long periods of suffering they caused. And in only two recoveries did government impose economic policies radically different from the policies pursued in all the other recoveries—different than traditional policy but similar to each other— FDR’s Great Depression and Mr. Obama’s Great Recession.
From 1932-36, federal spending skyrocketed 77%, the national debt rose by over 73%, and top tax rates more than tripled, from 25% to 79%. But the tectonic shift brought about by the New Deal was the federal government’s involvement in the economy, as a tidal wave of new laws were enacted and more executive orders were issued than by all subsequent presidents combined through President Clinton . . .
. . . As government assumed greater control, private investment collapsed, averaging only 40% of the 1929 level for nine consecutive years. League of Nations data show that by 1938, in five of the six most-developed countries in the world industrial production was on average 23% above 1929 levels, but in the U.S. it was still down by 10%. Employment in five of the six major developed countries averaged 12% above the pre-Depression levels while U.S. employment was still down by 20%. Before the Great Depression, real per capita GDP in the U.S. was about 25% larger than it was in Britain. By 1938, real per capita GDP in Britain was slightly higher than in the U.S.
Considering that in the four years following FDR’s ascension, the American economy grew at 10.88, 8.88, 13.05, and 5.12 percent respectively, according to the Bureau of Economic Analysis (BEA); or 10.74, 8.92, 12.91, and 5.23 percent respectively, according to the U.S. Department of Commerce; I am not quite sure what would constitute a strong bounce back for these partisans. There certainly has not existed any comparable rebound since.
This revisionist representation of the Great Depression abounds in sophistries and what we, in biblical circles, would call statistical proof-texting. Why, for instance, include years 1929 to 1932/3, a period when private investment totally collapsed, in determining the impact of New Deal policies from 1933 onward? (With inordinate price and asset deflation between late 1930 and mid-1933, investing one’s money in one’s mattress or backyard garden guaranteed that “investor” a 5–10% real return tax free.)
Nor is it fruitful to compare with other industrial nations without also mentioning that except for Germany and Canada, the economic downturn in America from 1929 to 1932/3 was considerably greater. Great Britain is, in particular, an egregious ploy, considering that the Great Depression was for Britain, a Great Recession within a Long Depression which began after WW1.
The national debt may have increased 73% in nominal terms from 1932–6. But as a percentage of GDP, it only increased from 32.5% to 40% during very trying times.[ii] Even so, comparing federal revenues and expenditures from (June) 1932 instead of (June) 1933, when Republican President Herbert Hoover governed for 8 of those 12 interim months, is but more statistical gamesmanship. In the final two years of the prior Republican administration, federal spending as a percentage of GDP was 10 (1932) and 13.5 (1933) percent respectively. Prior to WW2, FDR’s administration, except for 1934 (17%), never topped the last year of Hoover’s administration.
Indeed, FDR seemed not to have been particularly sold on Keynesian economics, which dominates the current economic thinking in Obama’s White House. Indeed, while John Maynard Keynes had hitherto expressed some rudimentary musings on his thesis, his The General Theory of Employment, Interest and Money was only published in 1936. Deficit spending during WW2 was mandated far more from existential survival than economic theory.
Did Gramm also fail to mention that Hoover’s administration deemed it necessary to raise top income tax rates to 63% in 1932?
Considering how easily accessible the extant documentation is to refute Gramm’s assertions, articles like these constitute an incompetent form of mendacity. Does The Wall Street Journal seek to vie with Vox for the gold medal in Mendacity in American Journalism.
[i] Philip Snowden, Introduction to Truth and the War, by E. D. Morel, (London: National Labor Press Ltd., 1916), p. vii.
[ii] GDP in 1932 was $60 billion, national debt $19.5. In 1936, the figures are $85B and $33.8B respectively.